BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |SB 1102 |Hearing |4/13/16 |
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|Author: |McGuire |Tax Levy: |No |
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|Version: |4/6/16 |Fiscal: |Yes |
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|Consultant|Weinberger |
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Local government: cities, counties, and other agencies
Creates an alternative method for collecting transient occupancy
taxes on some rental transactions for residential units that are
offered for short-term rental through an online platform.
Background
State law allows the legislative body of a city or county to
levy a tax on the privilege of occupying a room or rooms, or
other living space, in a hotel, inn, tourist home, motel or
other lodging unless the occupancy is for a period of more than
30 days. The tax is typically collected from consumers by
lodging providers. Revenues raised through local transient
occupancy taxes (TOTs) are most commonly deposited in local
general funds for general use. More than 400 cities and 55
counties levy a TOT. According to data from the State
Controller's Office, in the 2011-12 fiscal year, TOTs generated
more than $1.5 billion in local government revenues, of which
more than $1.2 billion was for general use.
In recent years, Internet-based hosting platforms, like Airbnb,
HomeAway and FlipKey have facilitated increasing numbers of
short-term rentals of homes and rooms within residences.
Although platforms use various business models, in general, a
platform facilitates a rental transactions in which an
"operator," who owns, holds a lease for, or manages property,
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makes the property available for short-term occupancy in
exchange for compensation by a "guest." The rapid growth in
short-term rentals of residential properties has generated
concerns that these short-term residential rentals may increase
housing costs, negatively affect surrounding residential
neighborhoods, and increase demands on public services while
generating insufficient local tax revenue to offset the costs of
those services. Under the online short-term rental platforms'
business model, individual operators, who cannot be easily
identified by a local tax collector, must remit the appropriate
amount of TOT revenues due on their rental transactions to a
city or county. Many city and county officials suspect that
some operators' failure to comply with local TOT laws results in
substantial revenues losses due to under-collection of the tax.
To improve their ability to enforce the collection of taxes
levied pursuant to local TOT ordinances on transaction
facilitated by platforms, some large charter cities have
individually negotiated tax collection agreements with companies
that operate the platforms. These agreements establish terms
under which the platforms, on behalf of the operator who makes a
unit available for rent through the platform, collect and remit
to local governments taxes that are due on those rental
transactions. However, negotiating individual agreements in
each California jurisdiction that imposes a TOT generates
unnecessary administrative costs for both public agencies and
private companies. Individual agreements also may result in a
patchwork of inconsistent TOT collection practices throughout
the state. To reduce administrative costs and bring greater
uniformity to the collection of taxes on transactions that are
facilitated through online platforms, some stakeholders want the
Legislature to establish an alternative, statewide framework
under which platforms can choose to collect and remit transient
occupancy tax revenues levied by local governments.
Proposed Law
Senate Bill 1102 establishes a program in which a platform that
elects to participate (referred to as a "collecting platform")
collects and remits TOT revenues that are due on specified
rental transactions that the platform facilitates in any city or
county exception for a city or county that elects not to
participate in the program (referred to as a "collecting
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jurisdiction"). Specifically, SB 1102's provisions:
I. Establish statutory requirements for a collecting
platform to collect and remit TOT revenues to cities and
counties under specified conditions.
II. Establish the process by which platforms can elect to
participate and local governments can elect not to
participate in the program.
III. Require collecting platforms to be subject to an annual
audit or review conducted by the State Controller.
IV. Provide for the continued implementation and enforcement
of some existing tax collection agreements between
platforms and cities.
V. Declare that its provisions do not limit existing local
regulatory authority.
VI. Define several key terms used throughout the bill.
I. Transient occupancy tax collection . Senate Bill 1102
requires that every collecting platform must collect, on behalf
of an operator, the amount of any tax levied pursuant to state
laws authorizing local transient occupancy taxes on every rental
transaction that is facilitated by a collecting platform for a
residential unit that is offered for occupancy for tourist or
transient use for compensation to the operator. This collection
obligation begins on July 1, 2017. A collecting platform is not
required to collect tax if a unit is located within a collecting
jurisdiction. SB 1102 requires a collecting platform to remit
the amount to the city, county, or city and county that levied
the tax pursuant to applicable requirements of local ordinances
governing the tax.
II. Platform and local government participation . Senate Bill
1102 requires that the State Controller, on or before March 1,
2017, must develop and publicly notice:
Procedures that a platform must use to notify the
Controller if the platform elects to become a collecting
platform.
Procedures that a city, county, or city and county must
use to notify the Controller if the city, county, or city
and county elects to become a collecting jurisdiction.
SB 1102 directs that:
A platform may elect to become a collecting platform by
using the procedures developed by the Controller to notify
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the Controller of the platform's election no later than
April 30, 2017.
A city, county, or city and county may elect to become a
collecting jurisdiction by using the procedures developed
by the Controller to notify the Controller of the city's,
county's, or city and county's election no later than April
30, 2017. The city council or board of supervisors of the
city, county, or city and county must approve the notice in
a public hearing before submitting the notice to the
Controller.
SB 1102 requires the Controller, no later than May 31, 2017, to
publicly identify, by posting on the Controller's Internet Web
site, each platform and each city, county, or city and county
that has provided a notice to the Controller.
SB 1102 requires that a platform that elects to become a
collecting platform, or a local government that elects to become
a collecting jurisdiction, may discontinue being a collecting
platform or collecting jurisdiction effective July 1, 2020 if it
provides notice to the State Controller one year in advance,
pursuant to procedures that the Controller must develop and
publicly notice.
SB 1102 allows a platform that did not elect to become a
collecting platform on July 1, 2017 to elect to become a
collecting platform by using the procedures developed by the
State Controller to notify the Controller of the platform's
election, subject to specified conditions.
SB 1102 establishes an ongoing series of deadlines by which a
platform or local government may either become a collecting
platform or jurisdiction or discontinue being a collecting
platform or jurisdiction.
III. Controller's audits or reviews . Senate Bill 1102 requires,
commencing on January 1, 2017, and by December 31 of each year
thereafter, the Controller to review or audit a collecting
platform's collection and remittance of tax revenue. For each
collecting platform reviewed or audited, the Controller must
submit a report to each city, county, or city and county in
which the collecting platform collected and remitted taxes. The
report must contain a description of the review or audit finding
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and identify any errors in the collection and remittance of tax
revenues within each city, county, or city and county that were
determined as a result of the review or audit. The audit or
review must not reveal any personally identifiable taxpayer
information, including a taxpayer's name and property address.
SB 1102 makes it unlawful for the Controller or other person who
obtains access to information contained in, or derived from, any
audit or review, report, or other records of the Controller, to
make known in any manner the business affairs, operations, or
any other information pertaining to any platform or any other
person required to provide information subject to audit or
review to the Controller or the amount or source of income,
profits, losses, expenditures, or any particular thereof, set
forth or disclosed in any such information provided to the
Controller, or to permit any audit or review or copy thereof or
any book containing any abstract or particulars thereof to be
seen or examined by any person.
SB 1102 requires the Controller, when requested by a city,
county, or city and county that is not a collecting
jurisdiction, to permit any duly authorized officer or employee
of that city, county, or city and county to examine the records
of the Controller pertaining to the audit or review of
collections by a platform within that city, county, or city and
county. The bill specifies that it must not be construed to
allow any officer or employee of that city, county, or city and
county to examine any records of any platform. Information
obtained by examination of Controller records must be used only
for purposes related to the collection of local transient
occupancy tax.
SB 1102 directs that, if the Controller believes that any
information obtained pursuant to specified provisions has been
disclosed to any person or has been used for purposes not
permitted by the bill, the Controller may impose conditions on
access to the Controller's records that the Controller considers
reasonable in order to protect the confidentiality of those
records.
SB 1102 allows a platform, city, county, or city and county to
appeal any audit findings identified in a review or audit
reported by providing a notice of appeal to the Controller's
General Counsel and specifies the manner in which the appeal
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process must be conducted.
SB 1102 allows the Controller to recover the reasonable costs,
measured by the Controller's standard rate, of an audit from the
audited or reviewed collecting platform.
The bill declares that a collecting platform that complies with
review or audit parameters established by the Controller must
not be required to provide to any local jurisdiction, including
a collecting jurisdiction, personally identifiable information
relating to operators using the collecting platform, or
concerning transactions facilitated in the local jurisdiction by
the collecting platform.
IV. Existing agreements . Unless a platform and a city, county,
or city and county mutually agree to terminate the agreement,
all of the following shall apply to a platform and a city,
county, or city and county that, on or before June 1, 2016, have
entered into a binding legal agreement relating to the
collection of any tax levied pursuant to this chapter:
The platform and the city, county, or city and county
will continue to be bound by the agreement and any election
made by the platform or the city, county, or city and
county pursuant to this section will not be effective as to
any other party to the agreement.
The platform and the city, county, or city and county
must notify the Controller of the agreement.
The platforms' collection or remitting of taxes levied
pursuant to this chapter pursuant to the agreement will not
be subject to review or audit by the Controller.
V. Local regulation . The bill declares that it provisions do
not limit the existing authority of a local jurisdiction to
regulate operators, including any local regulation that requires
operators to provide information concerning transactions
conducted in the jurisdiction, provided that the requirements do
not discriminate against transactions facilitated through a
platform.
VI. Definitions . Senate Bill 1102 defines the following terms:
"Collecting platform" means a platform that elects to
assume the responsibility for collecting and remitting to a
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city, county, or city and county on behalf of an operator,
the amount of any tax levied pursuant to an ordinance
adopted pursuant to state laws governing transient
occupancy taxes on a rental transaction that is facilitated
by the platform for a unit that is offered for occupancy
for tourist or transient use for compensation to the
operator.
"Collecting jurisdiction" means a city, county, or city
and county that elects to retain the responsibility for
collecting a tax levied pursuant to an ordinance adopted
pursuant to state laws governing transient occupancy taxes
directly from operators, rather than having a collecting
platform collect and remit the tax on an operator's behalf.
"Operator" means a person offering, through a platform,
to make a unit available for tourist or transient use.
"Platform" means a marketplace that is created for the
primary purpose of facilitating the rental of a unit
offered for occupancy for tourist or transient use for
compensation to the operator of that unit, and the owner of
the marketplace derives revenues, including booking fees or
advertising revenues, from providing or maintaining that
marketplace.
"Facilitating" includes, but is not limited to, the act
of allowing the operator of the unit to offer or advertise
the unit on the Internet Web site provided or maintained by
the owner of the platform.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . Recent growth in short-term rentals of
residential units, which has been made possible by online
hosting platforms, is having powerful effects in communities
throughout California. Increased and undisclosed tourist
traffic alters neighborhood character, creating additional
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demands on local public service providers. The increase in
short-term vacation rentals reduces the availability of already
scarce affordable housing in many communities. In many
communities, neither the operators who make residences available
for occupancy for fewer than 30 days nor the platforms collect
and remit applicable transient occupancy taxes. SB 1102 will
help some local governments collect transient occupancy taxes.
The additional revenues recovered pursuant to the bill's
provisions will be vital for local governments' efforts to
respond to and mitigate short-term vacation rentals' local
impacts. Additionally, by increasing TOT compliance, SB 1102
will help enforce a level playing field in the vacation rental
marketplace, ensuring that platforms don't gain unfair pricing
advantages as a result of operators' nonpayment of taxes.
2. Which transactions ? SB 1102 requires a collecting platform
to collect and remit applicable TOT revenues on every
transaction that the platform facilitates. It is unclear how
this requirement should apply in the context of some platforms'
business models. For example, in the case of a platform that
facilitates the rental of rooms in a hotel or inn that also
rents rooms to customers who contact it directly, it may make
sense for the hotel or inn to collect and remit TOT revenues
instead of the platform. Unlike single family homeowners or
apartment leaseholders who make rooms available through
platforms, hotel or inn operators are already in the practice or
collecting and remitting TOT revenues and are easily subject to
local governments' collection and audit procedures. The
Committee may wish to consider amending SB 1102 to apply the
alternative TOT collection process to those operators who make
units available only through online platforms. Alternatively,
the bill could provide for platforms to disclose some additional
information to local governments to identify transactions that
are facilitated by a platform involving an operator who also
remits TOT directly to local governments.
3. Local discretion . If a platform elects to become "electing
platform," SB 1102 requires a local government to take an
action, approved by a vote of its governing board, if it simply
wants to maintain its existing authority under state law to seek
payment of TOT revenues directly from the responsible taxpayers.
Some local officials may object to this requirement, which
appears to make a local government's ability to continue
collecting taxes in the same manner that it does under current
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law conditional on a private company's decision about whether or
not it wishes to assume tax collection on behalf of operators
who make units available through a platform. The Committee may
wish to preserve local governments' existing tax collection
authority by amending SB 1236 to allow local governments to
opt-in to the bills' alternative tax collection program, rather
than requiring them to opt-out.
4. Charter cities . The California Constitution allows cities
that adopt charters to control their own "municipal affairs."
In all other matters, charter cities must follow the general,
statewide laws. Because the Constitution doesn't define
"municipal affairs," the courts determine whether a topic is a
municipal affair or whether it's an issue of statewide concern.
SB 1102 says that it applies to all cities, including charter
cities. To support this assertion, the bill includes a
legislative finding and declaration that the bill's provisions
are a matter of statewide concern because, by providing
short-term rental online platforms with uniform transient
occupancy tax administration requirements, the bill will
establish a level playing field among all providers and decrease
the cost of complying with statutory collection and remittance
requirements.
5. Mandate . The California Constitution requires the state to
reimburse local governments for the costs of new or expanded
state mandated local programs. Because SB 1102 imposes new
duties on local government officials, Legislative Counsel says
that it imposes a new state mandate. SB 1102 requires the state
to reimburse local agencies if the Commission on State Mandates
determines that the bill imposes a reimbursable mandate.
Support and
Opposition (4/7/16)
Support : Unknown.
Opposition : California Hotel and Lodging Association.
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